While news of Amazon's demise would certainly be greatly exaggerated, several recent stories in the Wall Street Journal by writer Tom Gara suggest that Amazon is losing its pricing edge. (Amazon Losing Its Price Edge -- Lower prices and price wars with Amazon; Problem for Bezos: Mall Becoming Cheaper Than Amazon; and Live From the Front Lines of the Amazon Price War). Gara wrote that Amazon's competitors -- just about every retailer who's not Amazon -- brick-and-mortar giants and online upstarts alike -- have been doing their homework regarding pricing competitively -- and, to a certain degree, they are succeeding.
One brick-and-mortar retail store presenting lower prices than Amazon is Bed Bath & Beyond. Since early 2012, BB&T analysts have been tracking a basket of 30 products at both retailers, comparing the prices. When they started tracking, Amazon was, on average, 9% cheaper. In their latest study, however, released this week, Bed Bath & Beyond was cheaper for the first time by an average of 6.5%.
The competitive pricing, writes Gara, is another sign of the multi-front battle between Amazon and the giants of American retail. Some, like Bed Bath & Beyond are fighting with pricing. Others, like Best Buy, have introduced price match guarantees promising customers to meet any Amazon price for items in their stores. Yet others, like Wal-Mart, are putting an increasing focus on their online operations and using their networks of physical stores as distribution delivery points. (More on these activities in another post). Just last week, online competitor Overstock.com announced that it was starting "a book-pricing war with Amazon," and will permanently match Amazon's book prices.
The question is, how can retailers like Bed Bath & Beyond charge low, competitive prices?
1. Sacrifice gross margin. Analysts say some stores are simply choosing to “invest in price” on some items, sacrificing profit margins in order to drive top-line growth.
2. Receive exclusive deals from manufacturers on new products. Brick-and-mortar chains traditionally enjoy exclusive deals on new products. The special deals allow the retailers to offer lower prices, while Amazon only offers the same product as a third-party reseller.
3. Issue special coupons. Bed Bath & Beyond is known for sending attractive 20% off coupons to its customers regularly, bringing in a lot of extra sales. Once you adjust for their use, the analysts say, the price gap (over Amazon) widens out to 25%!
4. Collect state taxes. With the Marketplace Fairness Act will come equalized price advantages, when all retailers must collect state sales taxes and level the playing field.
5. Possess profit margin depth. In the case of a price war, Amazon can run a long time on thin or nonexistent profit margins; on the other hand, many traditional retailers like Bed Bath & Beyond have a backlog of solid profits and healthy margins, allowing them room to "invest in price" while remaining profitable.
6. Avoid technical trip-ups. For a brief period last week, the world's biggest e-commerce site (Amazon) went offline. Customers hungry for Internet bargains needed to go elsewhere on the Internet to get their fix.
Bottom Line For Your Bottom Line
Retailers are taking the fight to Amazon in the one area where Amazon has long been seen as virtually invincible: Pricing. Amazon-beating-offers are out there, and if big box retailers keep up their trend of challenging Amazon’s prices, more and more competitors will join the fight.
Depending on the retailer (and thanks to dedicated pricing & assortment intelligence tools), dynamic pricing systems allow retailers to change online in seconds, or vary offers based on individuals' locations, demographics or shopping history.
Don't underestimate the fact that, in order to beat and exceed the competition, including and especially Amazon, it is imperative for retailers to use the best, most sophisticated pricing and assortment intelligence solutions -- providing actionable data on millions of products and other promotional details -- to give retailers the information they need to compete in real-time and over time -- and come out on top.